The State of the Semiconductor Market in Q4 2026 and What It Means for Defence Obsolescence

As 2026 draws to a close, the semiconductor industry is having the biggest year in its history. Yet for the engineers and buyers who keep aircraft, defence platforms, rail signalling and medical systems running, it has been one of the hardest years for sourcing in recent memory. This post looks at what the latest market data tells us, why rising defence spending and the shift to drones make the picture more complicated, and what obsolescence managers should be doing about it before 2027.

How did the semiconductor market perform in 2026?

The semiconductor market grew at a record pace in 2026, driven almost entirely by AI data centres and memory. The SIA reported global sales of $517.7 billion in the third quarter, a 24.1% rise on the second quarter and the third consecutive quarter of growth above 20%. September sales alone were up 146.8% on the same month in 2025, and sales in Europe more than doubled year on year.

World Semiconductor Trade Statistics (WSTS) data shows where that growth came from. Memory sales rose 305% year on year in the first half of 2026, far ahead of every other product category, and WSTS calculates the full-year market could reach around $1.655 trillion. For context, the industry's previous record, set in 2025, was $795.6 billion.

Why is a record year bad news for legacy components?

Because the growth is concentrated in a small number of high-margin AI products, and manufacturers are moving capacity towards them and away from older parts. When the most profitable product on a production line is high-bandwidth memory for AI servers, a mature DRAM device or an 8-bit microcontroller becomes an opportunity cost.

The evidence is now visible across the supply chain. Z2Data reports that TSMC has said it is streamlining its mature-node production, including 6-inch and 8-inch wafers, to free resources for AI. Analysts at NAND Research forecast that DDR4 output could fall to around 20% of 2025 levels during 2026. The memory squeeze has even reached DDR2, a standard dating from 2003, with TrendForce data showing DDR2 prices rising 55 to 60% in Q2 2026 as hardware makers downgraded to older memory just to secure volume.

Analogue and power parts are under pressure too. Distributor Fusion Worldwide reported in September 2026 that Analog Devices lead times for op-amps, D/A converters and voltage references had stretched to 60 to 70 weeks, while lead times for Texas Instruments TPS and SN74 series products were still extending.

How many components are going obsolete?

More than 620,000 electronic components were discontinued by their manufacturers in 2025, according to lifecycle intelligence firm Z2Data. That is the second-highest figure on record, behind the pandemic peak of more than 700,000 in 2022, and Z2Data expects 2026 to match or exceed it.

The aerospace and defence sector is especially exposed. Z2Data points out, citing the National Academy of Engineering, that defence accounts for less than 2% of the US semiconductor market, so it has very little leverage when a manufacturer decides to rationalise a product line. A platform designed to serve for 30 years cannot easily absorb an end-of-life notice with a short last time buy window, and qualification requirements make redesign slow and expensive.

How is rising defence spending changing demand for semiconductors?

Defence spending is rising faster than at any point in a generation, and a growing share of that money is spent on electronics. At the NATO summit in The Hague in June 2025, allies agreed to raise defence and security spending to 5% of GDP by 2035, made up of 3.5% for core military capability and 1.5% for wider resilience such as cyber and infrastructure. The July 2026 summit in Ankara reinforced that commitment. In 2025, every one of NATO's 32 members met the old 2% target for the first time, and European allies and Canada increased spending by around 20% in real terms.

In the UK, the Defence Investment Plan published at the end of June 2026 sets out £298 billion of defence spending over four years, including £15 billion of new money, with annual spending rising to almost £80 billion by 2029. That takes UK defence spending to 2.7% of GDP.

More of each defence pound now goes on electronics. Industry estimates reported by Defence Online put electronics at around 17% of the value of defence equipment today, rising to around 25% by 2035 as platforms become more sensor-heavy and software-defined. German defence electronics specialist Hensoldt, for example, reported 2025 order intake of €4.71 billion, a 62% increase on the year before.

All of this new demand lands on the same constrained pool of mature-node components that existing programmes already depend on. New production lines for munitions, radar, communications and electronic warfare are competing with sustainment of legacy fleets for the same analogue, power and logic parts.

How have drones changed the type of technology used in defence?

Drones have moved defence electronics away from bespoke, military-grade designs supported for decades and towards high-volume products built from commercial off-the-shelf (COTS) parts. A first-person-view (FPV) attack drone uses the same kind of microcontrollers, image sensors, radio modules and memory found in consumer electronics, because it needs to be cheap, light and produced in huge numbers.

The scale is unlike anything in traditional defence procurement. The UK Government has said Ukraine is using roughly 200,000 drones a month. The economics have inverted too. A drone costing a few hundred pounds can threaten an asset worth millions, which is why counter-drone systems have become a manufacturing sector in their own right. In February 2026, five major European defence powers launched a joint effort to accelerate affordable counter-drone systems, and the counter-drone market is forecast to grow from around $3 billion in 2024 to as much as $22.7 billion by 2032.

The UK is now committing to this model at scale. The Defence Investment Plan includes more than £5 billion for drones and autonomous systems, the UK's largest ever investment in uncrewed technology. It funds additional FPV and interceptor drones for the British Army, up to 24 autonomous armed drones under Project NYX to operate alongside Apache helicopters by 2030, new reconnaissance drones under Project Corvus to replace Watchkeeper, and uncrewed Royal Navy platforms from Type 91 missile barges to Type 93 extra-large uncrewed underwater vessels. It also funds the Uncrewed Systems Centre in Swindon, described as Europe's largest drone testing facility, and a new Uncrewed Systems Taskforce.

Why do drones make obsolescence harder to manage?

Drones make obsolescence harder because they put commercial lifecycles inside military programmes. A commercial microcontroller or image sensor may only be in production for a few years. That is fine for an expendable FPV drone built this month and flown next month. It is a very different problem for a programme such as Project NYX or Project Corvus, which will need spares, repairs and upgrades for many years after first delivery.

There are three practical consequences for anyone responsible for a defence BOM:

• Obsolescence arrives sooner. Parts selected for cost and availability today may receive end-of-life notices before the system has finished its first production run.
• Demand spikes are sharper. When a drone design scales from hundreds to hundreds of thousands of units, it can consume the remaining stock of a mature part very quickly, leaving legacy programmes that use the same device short.
• Traceability matters more. Investigations by Ukrainian military intelligence have repeatedly found mainstream Western microcontrollers, including STMicroelectronics STM32 devices and Texas Instruments parts, inside recovered Russian drones. It shows how freely commercial components move through secondary channels, and why chain of custody cannot be assumed.

Is counterfeit risk rising?

Yes. Counterfeit risk rises whenever genuine parts become hard to find, because buyers are pushed towards the open market. ERAI, the industry body that tracks suspect parts, recorded 1,055 suspect counterfeit and nonconforming components in its 2024 annual report, a 25% increase on 2023 and the highest count since 2015. Distributors including Sourceability have warned that suspect counterfeits are rising again as the 2026 memory shortage continues.

ERAI's data also shows that most reported parts are first-time occurrences, so a clean history for a part number is no guarantee. That is why standards such as AS6081 for counterfeit avoidance by distributors and AS6171 for test methods exist, and why testing should be applied to every part sourced outside the franchised channel, whatever its availability status.

What should obsolescence managers do before 2027?

The most effective response is to treat obsolescence as a continuous discipline rather than a reaction to individual end-of-life notices. Based on the market conditions above, we recommend five actions:

• Run a full BOM lifecycle review now. Identify every mature-node memory, analogue, power and microcontroller part with a single source or a declining production status, and rank them by programme risk.
• Bring forward last time buy decisions. With some lead times beyond a year and many end-of-life notices arriving with short or no warning, waiting for the formal notice may leave too little time to act.
• Store lifetime buys properly. A last time buy only protects a programme if the parts are still in specification when they are needed. Nitrogen storage with controlled temperature and humidity, such as Force Technologies' Titan Long Term Storage facility, keeps components usable for many years.
• Test everything from the open market. Use suppliers that work to AS6081 and test in accordance with AS6171, including X-ray inspection, decapsulation and electrical testing, so that counterfeit and nonconforming parts are caught before assembly.
• Plan for COTS in defence systems. Where drones and other new platforms use commercial parts, build in upscreening to MIL-STD-883 where the application demands it, and identify form fit function replacement options early.

How can Force Technologies help you avoid counterfeits and protect your supply?

Force Technologies now tests, authenticates and stores obsolete components under one roof in Wiltshire, so parts can be verified and protected without leaving the UK. We built these capabilities because the market conditions described in this post are exactly what our customers told us they were worried about. Our CEO, Karen Salmon, expects counterfeit parts to flood the market over the next two to three years as AI, drone and missile manufacturers take up a growing share of semiconductor supply and other long-life programmes are pushed into the open market.

The Sovereign Test Lab. Our UK based, UK owned and privately funded anti-counterfeiting lab at Collingbourne Ducis tests obsolete semiconductors in accordance with AS6171. Every part goes through goods-in inspection and optical microscopy, with jet etch decapsulation and die inspection on a sample batch, X-ray inspection, X-ray fluorescence (XRF) analysis and DC electrical test. Force Technologies is currently going through AS6171 accreditation and is working towards ISO/IEC 17025. Because the lab is in the UK, customers avoid sending parts overseas for testing, along with the tariffs, timescales and transit risk that come with it.

Titan Long Term Storage. Once parts are verified, our Titan facility keeps them in specification for the life of your programme. Components are held at 15 to 25 degrees Celsius in an inert nitrogen atmosphere with less than 0.1% oxygen, in an ESD-safe environment with continuous environmental logging and audit-ready records. Stored this way, components can remain specification-compliant for 15 to 30 years.

Upscreening and obsolescence support. Where a programme needs military-grade assurance from commercial or industrial parts, we upscreen to MIL-STD-883. Around that, we provide BOM lifecycle monitoring, last time buy planning and form fit function replacements, all within our AS9100 Rev D quality system.

Together, these give you one route from sourcing to the production line: find the part, prove it is genuine, store it safely and release it when your programme needs it.

Talk to us about your 2027 plans. If you are reviewing a BOM, planning a last time buy or holding parts you are not sure about, send us the part numbers, quantities and application and our team will advise on the level of testing and storage your programme needs. You are also welcome to visit the Sovereign Test Lab and the Titan facility to see the process for yourself.

Ask about counterfeit testing · Arrange a lab visit · Talk to us about long-term storage

The bottom line

The semiconductor industry has never been bigger, but its growth is pulling capacity away from the components that long-life systems need most. At the same time, defence budgets are rising, defence platforms are becoming more electronics-heavy, and drones are bringing consumer-style lifecycles into military programmes. Together, these trends mean more demand, more end-of-life notices, longer lead times and higher counterfeit risk heading into 2027.

None of these problems is new to the obsolescence community, but their scale is. Force Technologies has helped aerospace, defence, rail, medical and industrial customers keep their systems supported since 1986, and with the Sovereign Test Lab and Titan Long Term Storage now operating side by side, we can test, authenticate and protect your components in the UK from the day you buy them to the day you fit them.

Sources

• SIA, Global semiconductor sales increase 24.1% from Q2 to Q3 2026 (3 Nov 2026)
• SIA, 2026 State of the Industry Report
• WSTS H1 2026 data, via AnySilicon
• Z2Data, How chip obsolescence is making DMSMS worse (28 Oct 2026)
• Fusion Worldwide, The Greensheet, September 2026
• The Next Web, DDR2 memory prices surge
• NAND Research, memory market analyst note
• Candriam, European defence autonomy (Ankara summit)
• NATO 2025 spending figures, via AllMind
• Linklaters, UK Defence Investment Plan briefing
• eWeek, UK £5bn drone investment
• Resilience Media, UK puts drones at the centre of the DIP
• Navy Leaders, Type 91 to 94 uncrewed platforms
• Defence Online, Europe's defence electronics boom
• Defence Online, Hensoldt order intake
• Milipol, Countering the drone threat
• inDefence, counter-drone market forecast
• TechRadar, STM32 chips in Russian drones
• Kyiv Independent, Western microchips in Geran-5
• Altium, ERAI 2024 counterfeit figures
• Sourceability, counterfeit components rising